Impact of proposed PPS reforms on real estate financing: What you need to know

The key collateral on a real estate financing deal is, of course, the relevant real property.

However, financiers also typically require a general security deed covering all the personal property of the relevant security provider. It is common for such transactions to include share/unit specific security deeds as well. Any such security interest must be registered on the Personal Property Securities Register (PPSR) established under the Personal Property Securities Act 2009 (Cth) (PPSA).

In this context, the Federal Government’s recently proposed reforms to the PPSR are relevant to all stakeholders in real estate financing transactions, particularly financiers and professional trustees who service financiers.

Proposed PPS reforms

The Federal Government released its exposure draft legislation in November 2023, consisting of the Personal Property Securities Amendment (Framework Reform) Bill 2023 and new regulations through the Personal Property Securities Regulations 2023. The Attorney General’s Department is now consulting with State and Territory Governments before introducing the legislation to the Federal Parliament.

Below, we set out a summary of some of the proposed reforms that stakeholders in real estate financing transactions should keep in mind.

Issue Proposed amendment
Simplification of collateral classes To simplify the collateral registration process, the proposed reforms will reduce the number of collateral classes from nine (with multiple sub-classes) to six standalone classes. The typical collateral classes in these transactions, being ALL PAAP and ALLPAAP Except, will be retained.
Duration of registrations Registrations with no end time will no longer be available. Registrations against natural persons have a maximum duration of 7 years. Registrations against other persons will also have a maximum duration of 7 years, except ALLPAAP and ALLPAAP Except registrations which may be 25 years.
Registrations against trust assets The requirements for registrations against trust assets are amended such that registrations should be made against the trustee (which is different to the current market practice of making registrations against the trust ABN or, in the absence of an ABN, the trust name).
Perfection by control in relation to an Investment Instrument (i.e., shares, units) Under the current law, a person has control of an Investment Instrument if they have possession of the instrument and are able to transfer or otherwise deal with the instrument.

Under the proposed amendments, a person will have control of a certificated Investment Instrument only if the instrument cannot be dealt with except with the consent of the secured party and, in addition, one of the following applies:

  • the secured party (or a third party on its behalf) is registered as the owner of the instrument on the issuer’s books; or
  • the secured party (or a third party on its behalf) possesses the instrument.

Other rules apply for uncertificated instruments.

PMSIs It will no longer be necessary for a registration to indicate whether or not it is a Purchase Money Security Interest. The timeframes for registering a PMSI will still apply, however (i.e., if the collateral is “inventory” before the grantor gets possession/attachment of the collateral and if the collateral is not “inventory”, 15 working days from when the grantor gets possession/attachment of the collateral).
Selection of multiple collateral classes It will be possible to select more than one collateral class in a registration, except for ALLPAAP and ALLPAAP Except registrations.
Serial numbered goods Serial numbered registrations for aircraft, motor vehicles, watercraft or certain intellectual property only need to be registered if the grantor is a natural person or if the secured party wants to avoid “taking free” risk
Amendment demands A contract term which prohibits making an amendment demand is void.
Fixtures Although no amendments are currently proposed, the Federal Government has indicated that it is exploring with States and Territories whether “fixtures” could be brought within the scope of the PPSA.

This may ultimately be relevant to real estate financing deals where fixtures exist or may exist on the relevant real property.

Importantly, the above is only a small snapshot of the contemplated changes. Some 345 changes have been recommended.

Next Steps for Financiers and Stakeholders

Financiers will need to consider their existing PPSA registration policies in light of the changes to determine how they make their registrations going forward. Financiers should also monitor any further changes that are proposed, as the Federal Government continues its consultation with other governments. In particular, any change which brings fixtures within the scope of the PPSA would be something of interest.

We will continue to monitor, and comment on, the proposed changes to the PPSA, particularly as updates become available and the legislation is introduced to Federal Parliament. If you have any questions or would like any more information, please reach out to Andrew Vincent or Peter Mutema.